NEW YORK: Yields on US government bonds edged higher on Tuesday ahead of a $34 billion auction of five-year notes, while the Federal Reserve began a two-day meeting that may produce clues on the timing on a possible interest rate increase.
The U.S. central bank is widely expected to leave its target on policy rates at 0.25 percent to 0.50 percent this week due to global risks, but traders seemed wary of signals the Fed would consider raising rates by year-end on signs the economic expansion remains on track.
The domestic economy's resilience following Britain's stunning vote to leave the European Union last month, known as Brexit, may allow Fed policymakers to normalize interest rates after raising them for the first time in nearly decade back in December.
Uneasiness over Fed signals on the next rate hike in its policy statement at 2 p.m. (1800 GMT) on Wednesday has left investors reluctant to buy short- and medium-dated Treasuries, traders and analysts said.
"You might have the Fed being slightly hawkish on Wednesday. What is the rush to buy two-year and five-year securities?" said Tom di Galoma, managing director at Seaport Global Holdings in New York.
The Treasury Department will sell $34 billion in five-year notes at 1 p.m. (1700 GMT), following a weak $26 billion sale of two-year notes on Monday. It will conclude this week's coupon-bearing supply with a $28 billion auction of seven-year notes on Thursday.
Ahead of the five-year supply, the latest data on consumer confidence and new home sales signaled steady economic growth, although data on manufacturing was mixed.
Treasury yields rose following the day's mostly encouraging data, reversing an early decline following European government debt, with yields stuck in negative territory due to purchases by the European Central Bank.
The benchmark 10-year Treasury yield was up 1 basis point at 1.582 percent, while the 30-year yield edged up 1 basis point at 2.298 percent.
The two-year yield, which is sensitive to traders' view on Fed policy, was up 1 basis point at 0.774 percent after reaching its highest level since the Brexit referendum.
In "when-issued" activity, traders expected the new five-year issue to sell at a yield of 1.169 percent, compared with 1.218 percent at the prior auction in June.
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